McDonald’s to pare menu, review ingredients

McDonald’s to pare menu, review ingredients

by Julie Jargon in Business Day

MCDONALD’s outlined plans for major changes to its food offerings — from the items it sells to how they are made — in the fast-food giant’s most far-reaching steps yet to try to rejuvenate its flagging US business.

The measures, discussed on Wednesday in an investor briefing on turnaround efforts, range from culling items from a menu that has become bloated to giving more customers the option of more customised ordering.

Executives also said the chain plans to study every ingredient in its products and review different cooking and holding techniques to improve the quality of its food.

"We must and will win with our food," new McDonald’s US president, Mike Andres, said during his first public address to investors.

The briefing came two days after the company reported the steepest monthly same-store sales decline in the US in more than 14 years. The November drop extended a sales slump in McDonald’s core market that began in 2012 and has persisted despite an improving US economy and, more recently, falling petrol prices.

The company has suffered from a range of problems, including a complicated menu that has slowed service and the loss of customers to fast-casual restaurants offering products that are viewed as fresher and more healthful.

"In the future we want to be much more culinary-inspired," Mr Andres said.

"We need to think about our ingredient labels being much smaller," with recipes consisting of ingredients people would find in their pantries. Why do we need to have preservatives in our food?" Mr Andres said, noting that McDonald’s goes through ingredients very quickly.

"We probably don’t."

Executives said the fast-food giant will remove eight items from its menu next month — though they didn’t specify which ones — and reduce the number of extra-value meals to 11 from 16 in an effort to simplify the menu.

In markets where the reductions have been tested, the company said it has seen a decrease in drive-through wait times. At the same time, the company is adding the ability to customise orders in some markets, an effort dubbed "create your taste" that lets customers use tablet computers to choose toppings.

The customised option will be available next year in about 2,000 of its more than 14,000 US restaurants.

"Customers have told us, ‘Make the best burger you can’," CE Don Thompson said. Mr Thompson said McDonald’s wants to be viewed as a chain of "modern progressive burger and breakfast restaurants".

Breakfast has been one of McDonald’s bright spots in the US, and the company soon plans to start advertising the freshness of its offerings, including the fact that the restaurants crack eggs for use in breakfast sandwiches, whereas some rivals reheat breakfast items.

John Gordon, founder of restaurant consulting firm Pacific Management Consulting Group, said the changes McDonald’s is making to its food and the way it communicates the quality of its food are critical. But he was disappointed that the customised burger programme will reach so few restaurants next year and says he would have liked to hear more about breakfast.

"They should offer breakfast later in the day. Younger people tend to consume breakfast at later hours and that’s one of the groups they’re weak with," he said. "But for a slow-moving, risk-averse behemoth, they said the right things."

The plans announced on Wednesday didn’t buoy McDonald’s shares, which closed at $90, down 1.5%, in line with the broader market.

McDonald’s shares have fallen 7.2% for the year. McDonald’s also plans to change its pricing structure to reduce the gap between its dollar, core and premium products. Core menu items, Mr Andres explained, have absorbed a disproportionate amount of inflationary cost pressure, causing customers to trade down to the lowest-price menu items, hurting profitability.

The company is putting more control in the hands of local markets in a new US corporate structure announced in October.

McDonald’s says menu items that sell well in one part of the country don’t necessarily appeal to consumers in another, so local managers are being given more authority to roll out locally relevant products — an initiative intended to also increase the speed of menu innovation.

Mr Andres said the shift to local control is part of McDonald’s effort to change its corporate culture to be more nimble. "We tend to be very risk-averse and make sure we test and test and test. We have the ability to greatly increase the speed to market," he said.

Local managers are also being given more autonomy to run traffic-boosting promotions. One market, for example, is offering a 60-second service guarantee. Mr Andres also said the company has to become more involved in local communities by sponsoring local sporting events and holding events to entice families to dine at McDonald’s.

"People want to feel good about brands they do business with," he said.